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Bertrand competition is a model of competition used in economics, named after Joseph Louis François Bertrand (1822–1900). It describes interactions among firms (sellers) that set prices and their customers (buyers) that choose quantities at the prices set.
As a solution to the Bertrand paradox in economics, it has been suggested that each firm produces a somewhat differentiated product, and consequently faces a demand curve that is downward-sloping for all levels of the firm's price.
Some reasons the Bertrand paradox do not strictly apply: Capacity constraints. Sometimes firms do not have enough capacity to satisfy all demand. This was a point first raised by Francis Edgeworth [5] and gave rise to the Bertrand–Edgeworth model. Integer pricing. Prices higher than MC are ruled out because one firm can undercut another by an ...
In microeconomics, the Bertrand–Edgeworth model of price-setting oligopoly looks at what happens when there is a homogeneous product (i.e. consumers want to buy from the cheapest seller) where there is a limit to the output of firms which are willing and able to sell at a particular price. This differs from the Bertrand competition model ...
Bertrand's box paradox: the three equally probable outcomes after the first gold coin draw. The probability of drawing another gold coin from the same box is 0 in (a), and 1 in (b) and (c). Thus, the overall probability of drawing a gold coin in the second draw is 0 / 3 + 1 / 3 + 1 / 3 = 2 / 3 .
The Bertrand paradox is a problem within the classical interpretation of probability theory. Joseph Bertrand introduced it in his work Calcul des probabilités (1889) [1] as an example to show that the principle of indifference may not produce definite, well-defined results for probabilities if it is applied uncritically when the domain of possibilities is infinite.
The Edgeworth model shows that the oligopoly price fluctuates between the perfect competition market and the perfect monopoly, and there is no stable equilibrium. [ 6 ] Unlike the Bertrand paradox, the situation of both companies charging zero-profit prices is not an equilibrium, since either company can raise its price and generate profits.
The Cournot model and Bertrand model are the most well-known models in oligopoly theory, and have been studied and reviewed by numerous economists. [54] The Cournot-Bertrand model is a hybrid of these two models and was first developed by Bylka and Komar in 1976. [55] This model allows the market to be split into two groups of firms.